1. Field of the Invention
The present invention relates to controlling portfolios. More particularly, the present invention relates to automatically allocating, rebalancing and transferring funds between mutual funds and portfolios based upon predetermined criteria.
2. Background of the Invention
A mutual fund is a managed form of collective investments that pools money from many investors and invests it into portfolios composed primarily of stocks, bonds, short-term money market instruments, or other securities.
Most mutual funds' investment portfolios are continually adjusted under the supervision of a professional manager. This manager generally forecasts the future performance of investments appropriate for the fund and chooses those which he or she believes will most closely match the fund's stated investment objective. This is known as active management. However, other mutual funds mirror established indices such as the S&P 500 and Wilshire 5000. The manager simply invests to replicate the movements of the index, regardless of market conditions. This form of management is known as passive management because the manager usually relies on a computer model with little human input. There is much debate of which style of management yields the best results, with positive and negative attributes on either side.
Choosing the “best fit” mutual fund to invest in is complicated. The potential investor should be aware of the risks and performance of each fund, as well as the type of fund. Funds vary substantially in their holdings and goals. Some funds may take on more risk in anticipation of a higher payoff in the future. Other funds focus on a more conservative approach avoiding risk for a more secure and consistent return. Depending on the specific goals of an investor, all criteria should be scrutinized in order to match those goals with a particular fund. Mutual fund growth is often unpredictable. If a fund is invested heavily in one particular area, a sudden change in that market can significantly alter the status of the fund. It is for this reason that mutual fund managers typically diversify the holdings of a mutual fund. Diversification gives the benefit of stability, as a sudden change in one area of the market will not substantially affect the entire fund.
One of the important factors for determining in which fund to invest is fund performance. If a particular fund is not performing up to an investor's expectations, the investor should transfer his assets to a fund that will meet his expectations. In order to minimize the possible loss involved in staying with a fund that has begun to underperform, this transfer should be done as soon as possible. However, constant monitoring of a fund's performance is beyond the capabilities of the average investor.
What is needed is a system or method that can automatically reallocate and rebalance a portfolio based on the pre-determined criteria given by the investor.